UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2016

or

☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File No.:  000-53957

GOLDEN GROWERS COOPERATIVE

(Exact name of registrant as specified in its charter)

Securities registered pursuant to Section 12(b) of the Act:  NONE

Securities registered pursuant to Section 12(g) of the Act:  Units

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes   ☐   No  ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes  ☐   No  ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ☒   No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES  ☒   NO  ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one)

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Act). Yes  ☐   No  ☒

As of March 03, 2017, the registrant had 15,490,480 Units issued and outstanding. There is no established public market for the registrant’s Units.  Although there is a limited, private market for the registrant’s Units, the registrant does not obtain information regarding the transfer price in transactions between its members and therefore is unable to estimate the aggregate market value of the registrant’s Units held by non-affiliates.

DOCUMENTS INCORPORATED BY REFERENCE:  NONE

TABLE OF CONTENTS

PART I

This report contains forward-looking statements and information based upon assumptions by Golden Growers Cooperative (“we,” “us,” “our,” and the “Cooperative”), including assumptions about risks and uncertainties faced by the Cooperative.  These forward-looking statements can be identified by the use of forward-looking terminology such as “anticipates,” “expects,” “believes,” “will,” or the negative of these terms or similar verbs or expressions.  If any of management’s assumptions prove incorrect or should unanticipated circumstances arise, the Cooperative’s actual results could materially differ from those anticipated by such forward-looking statements.  The differences could be caused by a number of factors or combination of factors, including, but not limited to, those factors influencing the Cooperative and its business which are described in this report in the “Risk Factors” section below.  Readers are urged to consider these factors when evaluating any forward-looking statement and to read this report and the documents that referenced in this report and filed as exhibits completely.  The Cooperative undertakes no obligation to update any forward-looking statements in this report to reflect future events or developments.  The Cooperative qualifies all of its forward-looking statements by these cautionary statements.

Item 1.  BUSINESS

GENERAL

Golden Growers Cooperative is a value-added agricultural cooperative association owned by 1,552 members primarily from Minnesota, North Dakota and South Dakota, all of whom deliver corn to the Cooperative for processing into a value-added product.  The Cooperative was originally formed in 1994 as a North Dakota agricultural cooperative.  On September 1, 2009, by way of a series of mergers, the Cooperative changed its domicile and form of entity from a North Dakota cooperative to a Minnesota cooperative association governed under Minnesota Statutes Chapter 308B.  A Minnesota cooperative association formed under Minnesota Statutes 308B operates as a cooperative for state law purposes, but is taxed as a partnership under Subchapter K of the Internal Revenue Code for tax purposes.

History

The Cooperative was originally formed in 1994 as a North Dakota cooperative with the goal of allowing its members to receive additional value from the corn that they grow through the processing of that corn into value-added products, such as corn sweeteners.  The Cooperative accomplished this purpose by forming a joint venture that formed ProGold Limited Liability Company (“ProGold”), a Minnesota limited liability company that designed and constructed a corn wet-milling facility in Wahpeton, North Dakota to process corn into high fructose corn syrup and related co-products.  The Cooperative’s membership in ProGold included a right and obligation for the Cooperative to deliver corn to the ProGold facility for processing.  The Cooperative’s members delivered corn to the ProGold facility on the Cooperative’s behalf to meet this delivery obligation.

On November 1, 1997, ProGold entered into an operating lease with Cargill Incorporated (“Cargill”) for the entire ProGold facility.  Cargill has operated the facility continually since this time.  While ProGold no longer operates the wet-milling facility, the Cooperative, through its members, continues to have the obligation to deliver corn directly to Cargill at the wet-milling facility for processing into high fructose corn syrup and related co-products.  The current lease with Cargill runs through December 31, 2017.  Cargill and ProGold have executed a nonbinding term sheet with respect to negotiating and documenting the terms of a new lease, which would begin January 1, 2018.

The Cooperative’s ownership interest in ProGold creates a value-added relationship between the Cooperative’s members and the facility.  When members deliver corn to the Cooperative for processing at the facility, they are paid a market price for the corn that is delivered.  In addition, members have a right to receive added value for the efforts in the form of patronage based on each member’s proportionate share of the Cooperative’s income from ProGold that is derived primarily from Cargill’s lease of the facility.  For more details regarding the Cooperative’s ownership in ProGold see “Ownership in ProGold.”

Business Operations

The Cooperative is in the business of providing value to our members by facilitating their delivery of corn to the corn wet-milling facility owned by ProGold.  We accomplish our business on behalf of our members not through the ownership of assets such as a plant and equipment, but through our contract relationships with all of the parties involved

in the ownership and operation of the facility.  From an income production perspective, our membership interest in ProGold is our primary asset that, in addition to giving the Cooperative the right to receive distributions from ProGold, also provides our members with additional value for the delivery of their corn for processing.  Annually, the Cooperative is required to deliver approximately 15,490,480 bushels of corn to Cargill for processing at the ProGold facility.  We meet this delivery obligation by having our members deliver their corn to the ProGold facility.

Since November 1997, ProGold has leased its corn wet-milling facility to Cargill.  Annually, Cargill pays ProGold rent equal to $21,500,000.  Throughout the term of the lease between Cargill and ProGold, our members, on the Cooperative’s behalf, have delivered corn to the facility for processing into high fructose corn syrup and related co-products.  It is our ownership interest in ProGold that creates a value-added relationship between our growers and the facility.  Notwithstanding this cooperative arrangement, Cargill is an integral part of our financial success.  Separate from the lease, Cargill also provides the Cooperative services that allow us to facilitate corn delivery at little or no expense.  In addition, the lease payments Cargill makes to ProGold that are in turn distributed to the Cooperative provide us with the cash to make distributions to our members.  If, however, Cargill and ProGold are unable to negotiate a new lease following expiration of the current lease on December 31, 2017, it is anticipated that the plant will continue operations, managed either by ProGold or another party, and will continue to provide a market for the corn produced by our members.

Any person residing in the United States can own our Units as long as that person delivers or provides for the delivery of corn for processing at the ProGold facility.  Ownership of our Units requires our members to deliver corn to the Cooperative in proportion to the number of Units each member holds.  Currently 15,490,480 Units are issued and outstanding.  The Cooperative’s income and losses are allocated to our members based on the volume of corn a member delivers or has delivered.  Subject to certain limitations, as long as a member patronizes the Cooperative by delivering corn equal to the number of Units held by the member, the member will be allocated a corresponding portion of our income (or loss).  In this way, we operate on a cooperative basis.

To hold our Units a member is required to execute a Uniform Member Agreement that obligates the member to deliver corn to us and an Annual Delivery Agreement by which each member annually elects the member’s method to deliver corn — either Method A or Method B, or a combination of both.  Under Method A, a member is required to physically deliver the required bushels of corn to us either at the ProGold facility or another location designated by the Cooperative.  Under Method B, a member appoints us as its agent to arrange for the acquisition and delivery of the required bushels of corn on the member’s behalf.  Separate from leasing the facility from ProGold, Cargill is in the grain services business.  In order to most cost effectively provide delivery services to our members, the Cooperative has entered into an agreement with Cargill whereby we appoint Cargill as our agent to arrange for the delivery of the corn by our members who elect to deliver corn using Method A, and we appoint Cargill as our agent to acquire corn on our behalf for our members who elect to deliver corn using Method B.  If a member elects to deliver corn using Method B, the price per bushel the Cooperative pays to the member is equal to the price per bushel paid by Cargill to acquire the corn as our agent.  The Cooperative pays members who deliver corn under Method A the market price or contracted price for their corn at the time of delivery.  Members who deliver corn under Method A receive from the Cooperative an incentive payment of $.05 per bushel on the corn that they deliver while members who elect Method B to deliver corn pay to the Cooperative a $.02 per bushel agency fee for the cost of having us deliver corn on their behalf.  The incentive payment for Method A deliveries and the agency fee for Method B deliveries are subject to annual adjustment at the sole discretion of our Board of Directors.  While the Cooperative is financially responsible for the various payments to the members for corn, Cargill, serving as the Cooperative’s administrative agent, issues payments to members for corn on the Cooperative’s behalf.

Annually, we notify Cargill of the number of bushels of Method A corn to be delivered by each member who has elected to deliver corn by Method A.  Once we provide notification to Cargill of the number of bushels of corn, Cargill then confirms the amount of corn with each member and notifies that member with respect to quality specifications, allowances, deductions and premiums to be applicable to that corn.  That Method A member then directly contracts with Cargill for the contract price agreed upon for the corn or, in the absence of an agreed upon price, the market price per bushel for corn delivered on the day on which the corn is delivered and accepted at the facility.  With respect to all corn that is delivered by Method A, Cargill pays to the Cooperative the aggregate purchase price for corn purchased from our members, and then, on our behalf, makes individual payments for corn directly to our members.  In the event a member who has elected to deliver corn by Method A delivers to Cargill more than its delivery commitment, any corn delivered in excess of that commitment is handled as a direct sale of corn to Cargill and is priced at the current closing delivery corn price established by Cargill at the facility on the day it is unloaded.  In the event a member who has

elected to deliver corn by Method A delivers to Cargill less than its committed amount of corn, the quantity of the shortfall is then purchased and delivered by Cargill on our behalf, but this purchased corn is not credited to such member’s account.  If a member fails to fully satisfy the corn delivery requirement, Cargill purchases replacement corn for which we reimburse Cargill the amount by which the underlying contracted corn price is less than the price of buying the replacement corn that was due on the delivery date.  In addition, if a member fails to deliver all of the corn it was obligated to deliver, that member’s allocation of our profit or losses and any cash distributions is proportionately reduced and we may terminate the member’s membership.

Based on the corn to be delivered by our members using Method A, Cargill then purchases the remainder of the corn to be delivered by us on behalf of our Method B delivering members at such time and in such quantities and at such prices it deems appropriate and in the best interest of us and Cargill.  Because Cargill purchases the corn on our behalf for our members who elect to deliver using Method B, the purchase price for the corn that would be paid to our members if they actually delivered the corn is offset against the payment to be made by us to Cargill for the cost to purchase the corn, thus no payment is made from Cargill to us for corn delivered using Method B.

Our members can change their delivery method annually, so the mix of members delivering by Method A or Method B changes each year.

In exchange for the services set forth above with respect to handling our member’s delivery of corn to the wet-milling facility, we pay Cargill an annual fee of $92,000, which is paid in quarterly installments.  In addition, we also pay Cargill a per-bushel fee if a Method A member fails to deliver corn.  This amount is in addition to any reimbursement required by us to Cargill for a Method A member’s failure to deliver.

All of our agreements with Cargill terminate if the lease between Cargill and ProGold is not renewed.  Cargill and ProGold have executed a nonbinding term sheet with respect to negotiating and documenting the terms of a new lease, but there is no guarantee they will reach an agreement to renew the lease.  We cannot predict if we will be able to continue on the same contract or economic terms with Cargill after December 31, 2017 if the lease is not renewed.

Our Bylaws establish a Method A delivery pool and a Method B delivery pool.  Generally, our income and/or losses are allocated annually based on the percentage of bushels of corn our members elect to deliver using either Method A or Method B.  Regardless of the actual percentage allocation between our members who deliver bushels of corn using Method A or Method B, our Bylaws require us to annually allocate at least 25% of our income and/or losses to the Method A pool.  The amount of our income and/or losses actually allocated to the Method A pool is a percentage equal to the greater of 25% or the actual percentage of bushels of corn delivered by our members using Method A.

If less than 25% of the bushels of corn are delivered by members using Method A, the members who do use Method A will be allocated 25% of our income and/or losses even though they deliver less than 25% of the bushels of corn obligated to be delivered by us to Cargill.  As a result of this requirement, a Method A member may receive a greater proportionate allocation of our income and/or losses than a Method B member who contracted to have the same amount of corn delivered.

For the 2015 and 2016 fiscal years, our members elected to and delivered 28.7% of the bushels of corn by Method A and 71.3% of the bushels of corn by Method B.  This resulted in 28.7% of our income and/or losses and 28.7% of any cash distributions being allocated to the Method A pool in fiscal years 2015 and 2016, which reflects the actual percentage of members who elected to deliver corn using Method A and does not result in reallocation to meet the 25% requirement set forth in our governing documents.

Ownership in ProGold

The Cooperative owns a 49% interest in ProGold and American Crystal Sugar Company (“American Crystal”) owns a 51% interest in ProGold.  American Crystal’s fiscal year ends on August 31 each year so ProGold’s fiscal year aligns with American Crystal’s.

In connection with its membership interest in ProGold, the Cooperative has the right and obligation to deliver corn to be processed at the wet-milling facility.  The Cooperative is also allocated 49% of the profits and losses of ProGold and is entitled to receive 49% of any cash that is distributed to ProGold’s members.

Currently, there are eleven members of ProGold’s board of governors and the Cooperative has the right to appoint five of these governors.  Members of the Cooperative’s Board of Directors occupy these seats and provide active oversight of the management of ProGold.  Based on percentage ownership in ProGold and representation on the ProGold board of governors the Cooperative does not control the operations of ProGold.  Extraordinary transactions such as a sale of ProGold or its assets, dissolution, as well as amendments to its operating agreement, approval of its strategic plan, approval of new members and approval of loans to ProGold by its members can be approved by American Crystal over the Cooperative’s objections.

Even though the Cooperative does not control ProGold, American Crystal cannot sell or transfer its interest in ProGold to any other party without the Cooperative’s consent.  The Cooperative also has a right of first refusal to purchase American Crystal’s interest in ProGold if it receives an offer for or desires to sell its interests in ProGold.  Neither the Cooperative nor American Crystal can transfer its interests in ProGold without Cargill’s consent as long as the lease between Cargill and ProGold is in effect.  American Crystal may buy the Cooperative’s interests in ProGold if any one person acquires more than 10% of the Cooperative’s Units or if the Cooperative changes its voting structure to anything other than one member one vote.

The wet-milling facility was built in 1995.  As processing facilities age, more extensive maintenance becomes necessary to keep the facility in good working order.  We anticipate that ProGold may be required to make certain capital improvements in connection with renewing the lease between ProGold and Cargill.  ProGold would pay for such capital improvements from its revenue, reducing any income available for its members at the time of such expenses.  The Cooperative and American Crystal would experience any such reduction in ProGold’s income proportionately based on their percentage ownership of ProGold.

The lease of the wet-milling facility between ProGold and Cargill terminates on December 31, 2017.  Although ProGold and Cargill have executed a nonbinding term sheet, there can be no assurances given that the lease will be renewed or that if the lease is renewed that the economic terms of the lease will remain the same.

Seasonality

Cargill operates the ProGold processing plant year-around but the facility only has enough corn storage on-site for approximately five days of operations.  Corn deliveries to the facility are typically required four or five days each week of the year.  Farmers harvest corn in October and November, although weather conditions have occasionally delayed harvest for some farmers into winter or spring.  Corn can be stored in storage facilities for a long period of time after it is harvested.

The Cooperative does not control when members deliver corn to Cargill for processing at the facility.  Some of members may elect to deliver higher volumes of corn immediately following harvest in October and November, while others prefer to deliver at times when local market prices are higher, typically in the spring and late summer months.  Corn price contracts that members and Cargill enter into each year typically anticipate these delivery trends and incent members to store their corn on their farms until fewer farmers wish to deliver to the plant.  As a result, while there is some seasonality to corn deliveries, members deliver corn every week of the year, and the Cooperative monitors and makes payments for those deliveries every week.

Intellectual Property Rights

The Cooperative does not hold any patents.  To the extent it develops proprietary information or rights, the Cooperative will rely on a combination of trade secrets, trademarks, nondisclosure agreements and technical measures to establish and protect our proprietary rights.

Research and Development

As a commodity-based business, the Cooperative does not conduct any research and development activities associated with either the development of new products or the development of new technologies for use in producing those products.

Employees

As of December 31, 2016, the Cooperative had 1 full-time employee, Executive Vice President, Scott Stofferahn, who serves in the capacity of chief executive officer and chief financial officer.

Legal Proceedings

The Cooperative is not currently involved in any legal proceedings.  In addition, we are not aware of any potential claims that could result in the commencement of legal proceedings.  The Cooperative carries insurance that provides protection against certain types of claims, up to policy limits.

Competition

As a grower-owned cooperative whose members are contractually obligated to deliver corn, the Cooperative generally does not face competition in the market place for corn.  More importantly, its governing documents and contractual arrangements with Cargill contain contractual incentives for growers to deliver corn to the Cooperative and not to another processor.  Even if members do not fully satisfy their delivery commitments, there are sufficient supplies of corn to be purchased in the open market to meet any contract obligations to Cargill, with any costs to be charged to the defaulting member.

The Cooperative was formed in 1994 by a group of corn growers with a goal of adding value to the corn they delivered for processing.  Members invested in the Cooperative with the goal of creating a facility where they could not only find a certain market for their corn but where they could also benefit from a long term investment in a value added enterprise such as the ProGold facility.  There is no competition in attracting members to the Cooperative and its services.  Other grain shippers and corn processing facilities in the region provide competition for the purchase of corn from members, but most do not provide the opportunity for membership or partial ownership and any resulting additional profits from the operation or lease of their facilities.

Item 1A.  RISK FACTORS

The risks described below together with all of the other information included in this report should be considered carefully.  The risks and uncertainties described below and elsewhere in this Form 10-K are not the only ones we face.  If any of the following risks actually occur, our business’s financial condition or results of operations would likely suffer.  In that case, the distributions made to our members may decrease, the value of our Units could fall, and a member could lose all or part of his, her or its investment.

Risks Relating to the Units

There is no public market for our Units and no public market is expected to develop.

There is no established public trading market for our Units, and we do not expect one to develop in the foreseeable future.  To maintain our partnership tax status, we do not intend to list the Units on any stock exchange or automatic quotation system.  As a result, our Units may have to be held for an indefinite period of time because the Units are not readily re-sellable.

Our Units are subject to significant restrictions on transfer.

The ability to transfer our Units is restricted by our Bylaws.  A member must obtain the prior consent of our Board of Directors before making any transfer of Units.  Transferability of Units is restricted in part to ensure that we are not deemed a “publicly traded partnership” and thus taxed as a corporation.  The delivery obligations that accompany our Units also partially restrict the transferability of our Units.  As a result, a member may have to hold Units for an indefinite period of time because the Units may not be able to be readily resold.

Risks Related to Our Operations

We are required to allocate at least 25% of our income and/or losses to the Method A pool regardless of the percentage of bushels of corn actually delivered under Method A.

Our Bylaws require that our income and/or losses be allocated to the Method A pool in a percentage equal to the greater of 25% or the actual percentage of corn delivered under Method A.  If less than 25% of the corn is delivered by the members using Method A, the members who do use Method A will be allocated 25% of the income and/or losses even though they deliver less than 25% of the corn we are obligated to deliver.  As a result, the Method A member may receive a greater proportionate allocation of our income and/or losses than a Method B member who contracts to have the same amount of corn delivered.

A member electing to deliver corn under Method A who fails to deliver corn will not be allocated income and/or losses or receive cash distributions for that year in proportion to the shortfall.

If a member elects to deliver corn pursuant to Method A and then fails to deliver all of the bushels of corn he or she was obligated to deliver, his or her allocation of our income and/or losses and cash distributions will be proportionately reduced by the number of bushels of corn the member failed to deliver pursuant to the terms of our Bylaws and Annual Delivery Agreement.

Risk Factors Related to Our Ownership of ProGold

We do not own a controlling interest in ProGold.

Our primary source of income is from our ownership interest in ProGold.  ProGold’s primary asset is the facility that it leases to Cargill.  We own only 49% of ProGold while American Crystal owns 51% of ProGold.  We do not have a controlling interest in ProGold and as a result, we have risks with respect to dealing with our minority interest in ProGold.  Generally, our business interests and American Crystal’s will be aligned with respect to decisions related to ProGold.  In the future, however, an issue could arise whereby we do not have the same interest and we would not have the ability to control ProGold.

The lease with Cargill for the facility expires in December 2017.

The corn wet-milling facility has been leased to Cargill since 1997.  The lease term runs through December 31, 2017.  Cargill bears all expenses with respect to operating and maintaining the facility except for extraordinary capital projects that may arise.  Cargill is required to operate the facility and pay fixed lease payments subject to a very limited exception related to the availability of an adequate water supply.  ProGold and Cargill have started the process of negotiating a new lease.  There is no guarantee that the lease will be renewed.  Further, if the lease is renewed, there can be no assurances given that the economic terms of the lease will remain the same.

If Cargill does not continue to lease the facility at the termination of the lease, ProGold’s options are to lease the facility to a third party, to run the facility itself or to sell the facility to another party.  There can be no assurances that a third party willing to operate or purchase the facility exists or that the value of the facility at the end of the lease will be such that it will be a profitable sale for ProGold, us or our members.

The Cooperative’s contracts with Cargill are connected to the term of the lease between ProGold and Cargill.

The Cooperative’s various agreements with Cargill, including the Grain Services Agreement and the Corn Supply Agreement, terminate automatically if the lease between Cargill and ProGold is not renewed.  If the lease between ProGold and Cargill is renewed, extended or renegotiated, these contracts may continue, but the terms may be renegotiated.  The Cooperative substantially relies on Cargill through these agreements to perform material functions for the Cooperative.  If these agreements terminate because the lease between ProGold and Cargill terminates, or if we are unable to renew the contracts with favorable terms, the Cooperative may not be able to provide these services on its own or find a vendor to provide these services (including Cargill) on the same advantageous economic terms.

ProGold may need to pay for maintenance to the facility.

The facility has been operated by Cargill since 1997.  While the facility has been maintained by Cargill pursuant to the terms of the lease, ProGold is responsible for the cost of any extraordinary capital expenditures.  In the event ProGold has to pay for any such capital expenditure, the amount of income available for distribution to its members would be reduced, which would in turn reduce amounts paid to our members.

Tax Risks Related to Our Operation

We could lose our partnership income tax status if the IRS determines to treat the Cooperative as a publicly traded partnership.

We have elected to be treated as a partnership for federal income tax purposes.  This means that we will pay no federal or state income tax at an entity level, but our members will pay tax on their allocated share of our net income.  However, we could become taxable as a C corporation if we are treated as a publicly traded partnership because of the manner in which our Units are transferred.

The tax liability a member may be responsible for as a result of an allocation of income may exceed any cash distributions the member receives.

As described above, we do not expect to pay any federal income tax, and all of our income and/or losses will “pass through” to our members.  Members must pay tax on that allocated share of our taxable income every year.  Although we are required to make cash distribution of at least 30% of the allocated income each year, a member may not receive cash distributions from us sufficient to satisfy all of the member’s tax liabilities.  This may occur because of various factors, including accounting methodology, or if we decide to retain cash generated by the business to fund its activities or other obligations.

A member may not be able to fully deduct its share of our losses or its interest expense.

It is likely that most of our members’ interests in the Cooperative will be treated as a “passive activity.”  In the case of members who are individuals or personal services corporations, this means that a member’s share of any loss incurred by us will be deductible only against the member’s income or gains from other passive activities (e.g., S corporations and partnerships that conduct a business in which the holder is not an active or material participant).  Some closely held C corporations have more favorable passive loss limitations.  Passive activity losses that are disallowed in any taxable year are suspended and may be carried forward and used as an offset against passive activity income in future years.  Upon disposition of a taxpayer’s entire interest in a passive activity to an unrelated person in a taxable transaction, suspended losses with respect to that activity may then be deducted.

Any audit of our tax returns resulting in adjustments could cause the IRS to audit our members’ tax returns, which could result in additional tax liability to our members.

The IRS may audit our tax returns and may disagree with the positions taken on those returns.  The tax rules regarding organizations like us are complex.  If challenged by the IRS, the courts may not sustain positions we took on our tax returns.  An audit of our tax returns could lead to separate audits of our members’ tax returns, especially if adjustments are required.  This could result in adjustments on our members’ tax returns and additional tax liabilities, penalties and interest to our members.

Item 1B.  UNRESOLVED STAFF COMMENTS

None

Item 2.  PROPERTIES

We lease executive office space at 1002 Main Avenue West, Suite 5, West Fargo, ND 58078.  The Cooperative’s office space needs are limited and easily met by a market rate lease.

Item 3.  LEGAL PROCEEDINGS

None

Item 4.  MINE SAFETY DISCLOSURES

None

PART II

Item 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET INFORMATION

There is no established trading market for our Units.  To maintain our partnership tax status, members may not trade their Units on an established securities market or readily trade Units on a secondary market (or the substantial equivalent thereof).  All transfers are subject to approval by the Board of Directors and a determination that the transfer will not cause us to be deemed a publicly traded partnership.  In accordance with the publicly traded partnership rules, the Cooperative has made arrangements with Alerus Financial to serve as a qualified matching service for our members.

Our Bylaws restrict the ability of our members to transfer their Units.  To help ensure that a secondary market does not develop, our Bylaws prohibit transfers without the approval of our Board of Directors.  The Board of Directors will not approve transfers unless they fall within “safe harbors” contained in the publicly traded partnership rules under the Code and the related rules and regulations, as amended.  Any transfers of Units in violation of the publicly traded partnership rules or without the prior consent of the Board of Directors will be invalid.

There are no outstanding warrants or options to purchase, or securities convertible into, our Units.  As of the date hereof, there are 15,490,480 Units that are eligible for sale pursuant to Rule 144.  We have not agreed to register any Units under the Securities Act for sale by members.

Holders

As of the date hereof, there are 1,552 holders of the Cooperative’s Units determined by an examination of the Cooperative’s equity records that the Cooperative maintains.  Our Units are uncertificated.

Distributions

The Cooperative, to the extent cash is available, generally plans to make distributions to its members.  The Cooperative may make cash distributions at such time and in such amounts as determined from time to time by our Board of Directors in its sole discretion; provided that the we must annually, on or before March 1 of each year, make a cash distribution to our then current members equal to at least thirty percent (30%) of the income allocated to members for the prior year.  Any such cash distributions shall be made in a uniform and equitable basis among the members within a particular allocation pool on the basis of patronage.  Such cash distributions will be reduced by any tax withholding payments that are made on the member’s behalf.  For more information regarding the allocation procedures, see the section below entitled “Description of Cooperative’s Securities - Allocation of Income and Losses.”  For the fiscal year ended December 31, 2015, the Cooperative made aggregate cash distributions to members of $10,225,000.  For the fiscal year ended December 31, 2016, the Cooperative made aggregate cash distributions to members of $9,449,000.

Securities Authorized for Issuance under Equity Compensation Plans

The Cooperative currently has no equity compensation plan.

Purchases of Equity Securities by Golden Growers Cooperative

None

RECENT SALES OF UNREGISTERED SECURITIES

None

DESCRIPTION OF COOPERATIVE’S SECURITIES

Overview

As detailed throughout this report, membership in our Cooperative as well as ownership of our Units involves some unique and complex characteristics, rights and obligations.  The following description sets forth certain of the rights, obligations and characteristics.  The Cooperative is governed by Minnesota Statutes Chapter 308B, its Amended and Restated Articles of Organization, its Amended and Restated Bylaws and Minnesota law generally.

The State of Minnesota enacted Chapter 308B — the Minnesota Cooperative Association Act —essentially statutorily combines the elements of a cooperative with the flexibility to be taxed as a partnership under Subchapter K of the Code.  Generally, agricultural cooperatives function much like a corporation except:  (1) membership is generally limited to a specific group of patrons; (2) voting is done on a one member one vote basis (instead of proportionate equity ownership); (3) distributions are based on patronage of the cooperative (instead of distributions in the form of dividends based on percentage ownership); and (4) dividends on investment securities are limited by statute, which discourages outside investors.  Minnesota Chapter 308B removes some of these restrictions by providing for both patron and non-patron members, but requires that at least fifteen percent (15%) of the profits and losses be allocated on a patronage basis.  Minnesota Chapter 308B explicitly allows for an entity organized under it to elect to be taxed as a partnership under Subchapter K of the Code.

Capitalization

The Cooperative’s Bylaws authorize 60,000,000 Units, of which 15,490,480 are currently issued and outstanding.

Membership Interests; Units

The Units denote membership interest in the Cooperative for the purposes of allocating income, gain, loss, deduction, credit and distribution and the right to deliver corn to the Cooperative.  Our Bylaws authorize one class of membership interest or Units.  The Cooperative has a first lien on all Units for all indebtedness owed to the Cooperative of any member related to the Units.

Qualifications for Membership

Membership in the Cooperative is limited to any natural person, partnership (whether general or limited), joint venture, association, cooperative, corporation, trust, estate, limited liability company, limited liability partnership, unincorporated association, governmental entity, or any other legal entity, including an individual acting as a sole proprietorship or as a business, who is a resident of the United States and (i) has entered into an Uniform Delivery Agreement with us, (ii) has acquired at least 4,000 Units, and (iii) has been accepted and approved by our Board of Directors.

Termination of Membership

A Unit holder’s membership in the Cooperative may be terminated by a majority vote of the Board of Directors if any of the following events occur:  (a) a Unit holder has become ineligible for membership for any reason; (b) a Unit holder has failed to patronize the Cooperative for a period of one year or more; (c) a Unit holder fails to enter into, or ceases to have in effect, a member agreement with the Cooperative; (d) a Unit holder that is an individual dies and the Unit holder’s estate does not fulfill the membership obligations pursuant to the Cooperative’s Bylaws, or a Unit holder that is a business entity ceases to exist and leaves no qualified successor to be a Unit holder as determined by the Board of Directors; or (e) the Board of Directors by resolution finds that a Unit holder has:  (i) intentionally or repeatedly violated any provision of the Articles of Organization or the Bylaws of the Cooperative; (ii) breached the member agreement or any other contract with the Cooperative, including but not limited to, the obligation to make timely

payments on the member’s account with the Cooperative; (iii) taken actions that will impede the Cooperative from accomplishing its purposes; (iv) taken or threatened to take actions that may adversely affect the interests of the Cooperative or its members; or (v) willfully obstructed any lawful purpose or activity of the Cooperative.

If a Unit holder’s membership in the Cooperative is terminated, the terminated member immediately loses all rights to vote but continues to have rights to distributions and allocations, subject to all of the restrictions that apply and to the extent applicable.  The terminated member’s delivery obligation terminates as of the date membership is terminated.  The Cooperative is required to refund the terminated member the value of the Units owned by the terminated member at the lesser of the book value or market value as of the date of termination less any amounts owed to the Cooperative by the member.  The refund is due and payable seven (7) years following the date of termination.  A terminated member may transfer his Units during the seven (7) year period to a person eligible for membership.

Voting Rights

Each member is entitled to one vote on all matters presented to the members for a vote, regardless of the number of Units owned by such member.

Allocation of Income and Losses

General Allocation Rules

All items of income, gain, receipt, loss, deduction, and credit of the Cooperative for each fiscal year are allocated among our members, and our member’s capital accounts, on the basis of the ratio that the volume of the business done with or for each such member bears to the volume of the business done with or for all members who participate in the respective pools described below.

Limits on Allocation of Losses

In a fiscal year that results in a loss, the allocation of such loss to any member shall be limited to the positive balance in such member’s capital account, such that no member will have a deficit balance in their capital account.  Any loss not allocated to the members on account of the preceding sentence (“Excess Loss”) will be reallocated among the remaining members participating in the respective allocation pools on the basis of the ratio that the volume of the business done with or for such member bares to the volume of business done with or for all members in the pool.  To the extent we generate income in a subsequent year, such income shall first be allocated to the members to whom Excess Losses have previously been allocated in order to offset the allocation of Excess Losses to the members’ capital accounts.  To effectuate this allocation of income, the income allocated to the capital accounts of the members from whom the Excess Losses were originally reallocated shall be decreased to properly reflect the amount of the previously allocated Excess Losses reallocated from such members.

Allocation Pools

Our Bylaws allow our Board of Directors to establish pools, or allocation units, on a reasonable and equitable basis.  These pools may be functional, divisional, departmental, geographic, or otherwise.  The Board of Directors has established two allocation pools: an A Pool and a B Pool.  Members are able to participate in one or both of the two pools by entering into an Annual Delivery Agreement specifying the volume of corn to be delivered under either Method A or Method B or both.

A Pool

Members delivering corn under Method A participate in the A Pool allocations of income and/or losses with respect to the corn delivered under Method A.  A member is required to deliver one bushel of corn for each Unit held by that member.  Allocations of income and/or losses to the A Pool for any year must be equal to the greater of (i) the percentage that outstanding Units held by members delivering bushels of corn under Method A bear to all outstanding Units held by all members, or (ii) twenty-five percent (25%).  The income and/or losses allocated to the A Pool are further allocated among the members participating in the A Pool on the basis of patronage, which equals the ratio that the volume of the business done with or for each such member bears to the volume of the business done with or for all members participating in the A Pool.

B Pool

Members delivering corn under Method B participate in the B Pool allocation of income and/or losses.  The percentage of income and/or losses that are not allocated to the A Pool for a given year, are allocated to the B Pool.  The income and/or losses so allocated to the B Pool are further allocated among the members participating in the B Pool on the basis of patronage which shall be the ratio that the volume of the business done with or for each such member bears to the volume of the business done with or for all members participating in the B Pool.

Distributions

The Cooperative may make cash distributions at such time and in such amounts as determined from time to time by our Board of Directors in its sole discretion; provided that the we must annually, on or before March 1 of each year, make a cash distribution to our then current members equal to at least thirty percent (30%) of the income allocated to members for the prior year.  Any such cash distributions shall be made in a uniform and equitable basis among the members within a particular allocation pool on the basis of patronage.  Such cash distributions will be reduced by any tax withholding payments that are made on the member’s behalf.

Restrictions on Transfer of Units

Any transfer and/or assignment of Units (or the financial and governance rights associated therewith) must be approved by our Board of Directors.  The Bylaws prohibit the Board of Directors from approving any transfer and/or assignment if it would result in the transferee directly or indirectly owning more than ten percent (10%) of the issued and outstanding Units.  Units can only be transferred or assigned to persons who qualify as members.  See additional transfer restrictions described in the section below entitled “Publicly Traded Partnership Rule.”

Distribution of Assets upon Liquidation

On liquidation, all of our debts and liabilities must be paid according to their respective priorities.  Any remaining value must be distributed among the holders of Units based on the value of each such Unit holder’s capital account.

Income Tax Considerations Related to our Units and our Operations

The following summary is not intended to represent a detailed description of the income tax consequences applicable to a particular member in view of that member’s particular circumstances, nor is it intended to represent a detailed description of the income tax consequences applicable to investors subject to special treatment under the federal and state income tax laws.  However, the summary is based on current provisions of the Code, current, proposed and temporary Treasury Regulations, court decisions, and other administrative rulings and interpretations.  All of these sources of information are subject to change, and changes to any of these sources may be applied retroactively.  Subsequent changes in these authorities may cause the tax consequences to vary substantially from the consequences described below.  This summary does not discuss all the tax considerations that may be relevant to a particular member in light of his or her personal circumstances (including their state of residence), or to certain types of members that may be subject to special tax rules.  Therefore, members are always encouraged to consult their own tax advisors.

Taxation as a Minnesota 308B Cooperative Association

As a Minnesota 308B cooperative association, the Cooperative can and has elected to be taxed as a partnership for federal income tax purposes.  This means that the Cooperative pays no federal income tax at the entity level, and our members pay tax on their allocable share of our net income.

If the Cooperative fails to qualify for partnership taxation for whatever reason, we would be treated as a C corporation for federal income tax purposes.  As a C corporation, we would be taxed on our taxable income at corporate rates, distributions of our earnings and profits would generally be taxed to the members as corporate dividends, and our members would not be required to report the member’s share of our income, gains, losses or deductions on their tax returns.  Because a tax would be imposed upon us as an entity, the cash available for distribution to members would be

reduced by the amount of tax paid which could cause a reduction in the value of the membership interests held by our members.

Flow-through of Taxable Income; Use of Calendar Year

Because the Cooperative has elected to be taxed as a partnership, each member of the Cooperative is required to report on his income tax return for the taxable year with which, or within which, ends the Cooperative’s taxable year his distributive share of the Cooperative’s income, gains, losses and deductions without regard to whether corresponding cash distributions are received.  The Cooperative will provide each member with an annual Schedule K-1 indicating the member’s share of our income, loss and their separately stated components.

Because we are taxed under Subchapter K as a partnership, Code Section 706(b) requires us to have our own taxable year separate from the taxable years of our members.  A partnership generally must use the “majority interest taxable year” which is the taxable year that conforms to the taxable year of the holders of more than fifty percent (50%) of its interests.  In our case, we believe that the majority interest taxable year is the calendar year ending on December 31.

Allocation of Income and Losses

Under Code Section 701, an entity, such as the Cooperative, subject to taxation as a partnership under Subchapter K of the Code, is not itself subject to Federal income taxation.  Instead, each of our members will be required to report his or her allocable share of our income and/or losses, and each of our members will be liable for federal income tax on such income in each member’s individual or separate capacity.  Code Section 702 provides that the character of any such item of income or deduction allocated to a member will be the same as its character to the Cooperative.  Each member will be taxed on his or her distributive share of our income even though the equivalent amount of cash may not be distributed to such member.

Section 704(a) of the Code provides that a member’s distributive share of all income, gain, loss, deduction or credit shall be determined by a partnership agreement.  In the case of the Cooperative, that agreement is our Bylaws.

Our Bylaws generally provide for the maintenance of capital accounts in accordance with the requirements of the 704(b) Regulations.  Under the 704(b) Regulations, capital account maintenance rules, the Cooperative is required to maintain a capital account for each member, which generally is:  (1) increased by the amount of money and the fair market value of the property contributed by the member; (2) increased by the allocations of partnership income or gain (or items thereof); and (3) decreased by  the amount of money and the fair market value of property distributed to the member; and (4) decreased by the allocations of partnership deductions or losses (or items thereof).  Liquidation proceeds are distributed in accordance with positive capital account balances, and the Bylaws limit the allocation of losses to such members’ positive capital account balances.

Tax Treatment of Distributions

Under Section 731 of the Code, cash distributions by the Cooperative to our members generally will not be taxable to the members for federal income tax purposes as long as distributions do not exceed the member’s basis in the member’s Units immediately before the distribution.  However, cash distributions in excess of a member’s basis in the Cooperative’s Units — which are considered unlikely — will be treated as gain from the sale or exchange of the member’s Units under the rules described below for Unit dispositions.

Tax Basis of Units and Periodic Basis Adjustments

Under Section 722 of the Code, a member’s initial basis in his or her Units in the Cooperative will be equal to the sum of the amount of money contributed to the Cooperative or the member’s purchase price for the Units if the Units were purchased from another member.  This amount is increased by a member’s share of our debt.  The Cooperative has no indebtedness.

A member’s basis in our Units will be increased to reflect the member’s distributive share of our taxable income.  If a member makes additional capital contributions at any time, the adjusted Unit basis will be increased by the amount of any cash contributed.

Under Section 705 of the Code, a member’s Unit basis generally will be decreased, but not below zero, by (1) the amount of any cash distributed to the member; (2) the basis of any other property distributed; (3) the member’s distributive share of losses and nondeductible expenditures of the Cooperative that are “not properly chargeable to capital account;” and (4) any reduction in that member’s share of our debt.

Unit basis calculations are complex.  A member is only required to compute Unit basis if the computation is necessary to determine his or her tax liability, but members should maintain accurate records.  Typically, basis computations are necessary at the following times:

Except in the case of a taxable sale of a Unit by a member or the liquidation of the Cooperative, exact computations are generally not necessary.  For example, a member who regularly receives cash distributions that are less than or equal to his or her share of our taxable income will have a positive Unit basis at all times.  Consequently, no computations are necessary to demonstrate that cash distributions are not taxable to the member under Section 731(a)(1) of the Code.  The purpose of the basis adjustments is to keep track of a member’s “tax investment” in the Cooperative, with a view toward preventing double taxation or exclusion from taxation of income items upon ultimate disposition of the Units.

Member’s Limitation on Deduction of the Cooperative’s Deductions or Losses

A member may not deduct his or her allocable share of the Cooperative’s losses to the extent such losses exceed the member’s basis in his or her Units.  Excess losses are carried forward indefinitely, and such losses may be deducted to the extent that, at the end of any subsequent year, the member’s basis in his or her interest exceeds zero.

Section 465 of the Code limits, in certain circumstances, the amount of loss that a member may deduct in connection with such member’s share of our activities.  Section 465 provides that certain taxpayers (including individuals) who sustain a loss may deduct such loss only to the extent of the amount the taxpayer is “at risk” at the end of a taxable year.

The member’s ability to deduct losses of the Cooperative may also be limited, in certain circumstances, under the passive loss rules of Section 469 of the Code.  Under these rules, losses and credits from a business activity in which the taxpayer does not materially participate (a passive activity) generally may only offset income from the taxpayer’s other passive activities.  Therefore, the excess of a taxpayer’s aggregate losses from passive activities for the taxable year over aggregate income from passive activities for the taxable year is not allowed as a deduction against the taxpayer’s other income, including salary, active business income and portfolio income (such as dividends, interest, annuities, royalties, and non-business capital gains, and including portfolio income passed through to the taxpayer from a passive activity).  Losses and credits from passive activities that are not allowed can be carried forward indefinitely and, generally, will be allowed in subsequent years against income from passive activities.  Disallowed losses or credits from a passive activity are allowed in full when the taxpayer recognizes gain or loss upon a disposition of his entire interest in the activity.  The limitations on deductibility of passive losses also apply for alternative minimum tax purposes.

Section 1.469-5T of the Temporary Treasury Regulations provide detailed safe harbor rules for determining whether a taxpayer is active or passive with respect to an activity.  It is anticipated that most members will generally not be treated as materially participating in the Cooperative’s trade or business.

Members who borrowed to purchase their equity interest in the North Dakota cooperative may have been deducting the interest expense.  Since the conversion occurred, this interest expense will need to be aggregated with other items of income and loss from passive activities and subjected to the passive activity loss limitations.  To illustrate, if a member’s only passive activity is the Cooperative, and if the Cooperative incurs a net loss, no interest expense on related borrowing would be deductible.  If that member’s share of our taxable income is less than the related interest

expense, the excess would be nondeductible.  In both instances, the disallowed interest would be suspended and would be deductible against future passive activity income or upon disposition of the member’s entire interest in the Cooperative to an unrelated party in a fully taxable transaction.

Alternative Minimum Tax

The Cooperative is deemed to hold a proportionate share of the assets held by ProGold.  ProGold owns depreciable property.  To the extent ProGold adopts or has adopted an accelerated method of depreciation for income tax purposes, it is possible that an adjustment for depreciation expense for Alternative Minimum Tax purposes could flow through on the Schedule K-1’s issued to each of our members.

Publicly Traded Partnership Rules

The Cooperative has elected to be taxed as a partnership which provides for flow-through taxation.  Because the Cooperative has many members, it could potentially be classified as a “publicly traded partnership” which could have adverse consequences on the Cooperative and our members.  A partnership that constitutes a “publicly traded partnership,” as defined in Section 7704(b) of the Code, is generally treated as a C corporation for federal tax purposes.  The Cooperative has instituted various transfer restrictions and other policies to avoid being classified as a publicly traded partnership under Section 7704 of the Code by restricting transfers of Units in the manner described below.

By way of explanation, a partnership is classified as a publicly traded partnership if its interests are either: traded on an established securities market; or readily tradable on a secondary market or the substantial equivalent thereof.  The Units are currently not listed nor do we intend to list the Units on the New York Stock Exchange, the Nasdaq Stock Market, or on any other exchange or system which would be classified as an established securities market under the Code and Treasury Regulations.

Section 1.7704-1(j) of the Treasury Regulations provides for a safe harbor which shelters interests from being deemed readily tradable on a secondary market or its substantial equivalent under the general “facts and circumstances” test when there is a “lack of actual trading” of the interests.  The Cooperative only allows those transfers of interests during any taxable year that permits the Cooperative to qualify under this “lack of actual trading” safe harbor.  This safe harbor applies where the sum of the interests in capital or profits transferred during the tax year of the partnership does not exceed two percent (2%) of the total interests in capital or profits.  For purposes of testing compliance with this safe harbor, only the following types of transfers, which are explained below, will be allowed by the Cooperative, subject to approval by the Board of Directors: “private” transfers; transfers pursuant to a “qualified redemption or repurchase agreement”; and transfers through a “qualified matching service.”

Private transfers include:

Transfers pursuant to a qualified redemption or repurchase agreement include transfers where:

Transfers will be deemed to occur through a qualified matching service if:

The Cooperative has made arrangements with Alerus Financial to serve as a qualified matching service that meets the requirements set forth above.

Tax Consequences of Disposition of Units

Recognition of Gain or Loss

A member will recognize gain or loss on a sale of our Units equal to the difference between the amount realized and the member’s basis in the Units sold.  The amount realized includes cash, the fair market value of other property received, plus the member’s share of our debt.  Because of the inclusion of debt in a member’s basis, it is possible that a member could have a tax liability on sale that exceeds the proceeds of sale.  While this result is common in “tax shelters,” it is quite unlikely in the case of a typical business operation such as that of the Cooperative.

Gain or loss recognized by a member on the sale or exchange of a Unit held for more than one year generally will be taxed as long-term capital gain or loss.  A portion of this gain or loss, however, will be separately computed and taxed as ordinary income or loss under Section 751 of the Code to the extent attributable to depreciation recapture, other “unrealized receivables” or “substantially appreciated inventory” owned by the Cooperative.  The Cooperative has adopted conventions to assist those members that sell Units in apportioning the gain among the various categories if applicable.

Allocations and Distributions Following Unit Transfers

Section 706(d) of the Code requires that income and loss allocations with respect to Units that are transferred during a fiscal year must take into account the varying interests of the transferor and transferee during the year.  Further, Treasury Regulations Section 1.706-1(c) proscribes several methods, including the interim closing of the books and the daily proration method.  The interim closing of the books method allocates profits and losses through the transfer date to the transferor and after the transfer date to the transferee.  The proration method is essentially a rule of administrative convenience that allocates annual income between the transferor and transferee based on the portion of the year that has elapsed prior to the transfer.

We determine our profits and loss annually, and we will allocate the profit or loss for the year of transfer between transferors and transferees of Units using a proration method based on the proportion of corn that has been delivered as of the date of the transfer.  Transfers of Units with respect to which Method A delivery is applicable will be permitted only after the member has delivered 100% of the corn requirement for that taxable year.

The Board of Directors will review Unit transfers quarterly.  Unit transfers that are approved will be recognized as occurring at the beginning of the first day of the next quarter following the quarter in which the notice, documentation, information, and approval requirements of the transfer have been substantially complied with to the satisfaction of the Cooperative (Transfer Date).  Allocations will be made to the transferor on a prorated basis based upon the volume of corn delivered between the commencement of the taxable year through the Transfer Date.  The transferee will be allocated its share of the allocations based on the volume of corn delivered after the Transfer Date through the end of the taxable year of the transfer.  The Board of Directors has the authority to adopt another reasonable method and/or convention with respect to the allocations and distributions.

Although a transferor member will receive an allocation of income that must be reported on the member’s tax return, any distribution of cash that is made by the Cooperative with respect to the allocated income will be paid to the transferee member.  Such distribution will be reduced by any tax withholding payments that are made on the transferor’s behalf.  Accordingly, the transferor and transferee should plan accordingly in addressing the income tax and cash flow implications of a transfer of units.  Members should consult their tax advisor and legal counsel before entering into a sale or exchange of our units.

Effect of Tax Code Section 754 Election on Unit Transfers

Each member’s adjusted basis in the Units (Outside Basis) initially will equal the member’s proportionate share of the adjusted basis of the Cooperative in our assets (Inside Basis).  Over time, however, it is probable that changes in Unit values and cost recovery deductions will cause the value of a Unit to differ materially from the member’s proportionate share of the Inside Basis.  Section 754 of the Code permits us to make an election (a 754 Election) that allows a transferee who acquires our Units either by purchase, or upon the death of a member, to adjust the transferee member’s share of the Inside Basis to fair market value as reflected by the Unit price in the case of a purchase, or the estate tax value of the Unit in the case of an acquisition upon death of a member.  Once the amount of the transferee member’s basis adjustment is determined, it is allocated among the transferee’s pro-rata portion of our various assets pursuant to Section 755 of the Code.

A 754 Election could be beneficial to the transferee member when such member’s Outside Basis is greater than such member’s proportionate share of the entity’s Inside Basis.  In this case, if a 754 Election were in effect, a special calculation would be made solely for the benefit of the transferee member that would determine the member’s cost recovery deductions and the member’s gain or loss on disposition of Cooperative property by reference to the member’s higher Outside Basis.  The 754 Election will be detrimental to the transferee member if the member’s Outside Basis is less than the member’s proportionate share of Inside Basis.

Our Bylaws provide that our Board of Directors does not have authority to authorize a 754 Election on the Cooperative’s behalf.  A 754 Election is beneficial only where the tax benefits made available to affected Unit holders and their transferees by the 754 Election are likely to be sufficient to justify the increased cost and administrative burden of accounting for the resulting basis adjustments.  Once made, a 754 Election is irrevocable unless the IRS consents to its revocation.  In the event our Bylaws are amended to provide the Board of Directors authority to make a 754 Election, then, at such time when a 754 Election is made on behalf of the Cooperative, the Board of Directors will notify the members of the manner in which to comply with applicable rules.

Other Tax Matters

Tax Information to Members; Consistent Reporting

We are required to provide each member with a Schedule K-1 (or authorized substitute therefore) on an annual basis.  Harsh penalties are provided for failure to do so unless reasonable cause for the failure is established.  Each member’s Schedule K-1 will set out the holder’s distributive share of each item of income, gain, loss, deduction or credit that is required to be separately stated.  Each member must report all items consistently with Schedule K-1 or, if an inconsistent position is reported, must notify the IRS of any inconsistency by filing Form 8062, “Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR),” with the original or amended return in which the inconsistent position is taken.

Current IRS Audit Procedures

Section 6221 of the Code requires the tax treatment of all “partnership items” to be determined at the entity level, rather than the member level.  Partnership items are those items that are more appropriately determined at the partnership level than at the partner level as provided by the Code and the Treasury Regulations (the Unified Audit Rules).  Since we are taxed as a partnership, these rules are applicable to the Cooperative and our members.

The Unified Audit Rules allow the IRS to challenge the reporting position of an entity that is taxed as a partnership for income tax purposes by conducting a single administrative proceeding to resolve the issue with respect to all of the entity’s members.  However, the IRS must still assess any resulting deficiency against each of the taxpayers who were members of such entity in the year in which the understatement of tax liability arose.  Any member of an entity taxed as a partnership can request an administrative adjustment or a refund for such member’s own separate tax liability.  Any member also has the right to participate in such “partnership-level” administrative proceedings.  A settlement agreement with respect to partnership items binds all parties to the settlement.

IRS rules establish the “Tax Matters Partner” as the primary representative of an entity in dealings with the IRS.  The Tax Matters Partner must be a “member-manager” which is defined as a member who, alone or together with others, is vested with the continuing exclusive authority to make the management decisions necessary to conduct the business for which the organization was formed.  In our case, this would be a member of the Board of Directors who is also a member of the Cooperative.  The Bylaws provide for the Board of Directors to designate the Tax Matters Partner.

Self-Employment Tax

The Code and Treasury Regulations provide that general partners are subject to self-employment tax on their distributive share of partnership income and that limited partners who do not render services to the partnership are not subject to self-employment tax.  Neither the Code nor the Treasury Regulations directly address the treatment of our members for self-employment tax purposes.  Proposed Treasury Regulations, however, were issued in 1997 that provide generally for imposition of the self-employment tax on limited liability company members only if such members:  (i) have personal liability for limited liability company obligations; (ii) have authority to contract on behalf of the limited liability company; or (iii) participate in the limited liability company’s business for more than 500 hours each year.  Few, if any, of our members would be subject to self-employment tax under this test unless such members are employees of the Cooperative.  Members who are employees of the Cooperative will be subject to self-employment taxes not only on the member’s share of our taxable income, but also on the member’s salary and certain fringe benefits that are not deductible in calculating taxable earnings from self-employment.

The status of the Proposed Treasury Regulations is uncertain because they were subject to a Congressional moratorium that ended July 1, 1998, and the Treasury still has not taken steps to finalize them.  Nevertheless, because of the similarity of our members to limited partners, it is believed to be highly likely that members of the Cooperative will be treated similar to limited partners, i.e., generally not subject to self-employment tax on a member’s share of our earnings.

State Income Taxes

The Cooperative’s members generally are subject to tax in each member’s state of residence as well as in those states in which the entity does business if a member’s share of income exceeds the minimum filing requirements.  Since we do business in several states, this could create a substantial reporting burden for the members.  Most states, however, allow “composite reporting” by partnerships and limited liability companies which means that the entity pays income taxes to the various states and the individual members are relieved of the reporting responsibility in states other than the member’s state of residence.  The member’s state of residence generally will allow a tax credit for state income taxes paid by the entity for the benefit of the member.  For example, a member who is a resident of Minnesota will report the member’s entire share of the Cooperative’s income, but the member will receive credit on the member’s Minnesota return for taxes paid to North Dakota and other states on the member’s behalf.  The Minnesota resident member generally will not have to file individually in other states if the Cooperative elects to file composite tax returns.  We do not anticipate electing to file composite tax returns.  This result, however, may vary depending on the state of which a particular member is a resident.  Members are encouraged to consult their own tax advisors on this matter.

The Cooperative will be required to file a tax return in North Dakota and under North Dakota law the Cooperative will be required to withhold and remit at the maximum rate from any allocations that are made to nonresidents of North Dakota.  Nonresident withholding is required irrespective of any cash distributions that may be made.  Therefore, any cash distributions that are made will be reduced by any tax withholding payments that have been made on member’s behalf.

Item 6.  SELECTED FINANCIAL DATA

The following table presents our selected historical financial data.  We derived the selected income statement data from our audited financial statements for the fiscal years ended December 31, 2012, 2013, 2014, 2015 and 2016, which have been audited by Widmer Roel P.C., independent auditors.  The historical results are not necessarily indicative of the results that may be expected in the future.  You should read this data together with our financial statements and related notes included elsewhere in this report and the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

INCOME STATEMENT DATA:

(in thousands, except share and per unit data)

Item 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Cooperative’s financial statements, the notes thereto and the other financial data included elsewhere in this Annual Report on Form 10-K.  The following discussion contains forward-looking statements.  Such statements are based on assumptions by the Cooperative’s management as of the date of this report and are subject to risks and uncertainties, including those under the heading entitled “Risk Factors,” that could cause actual results to differ materially from those anticipated.  Readers should not place undue reliance on such forward-looking statements.

Results of Operations

Comparison of Fiscal Years Ended December 31, 2016 and December 31, 2015

Revenues.  The Cooperative derives revenue from two sources:  operations related to the marketing of members’ corn and income derived from the Cooperative’s membership interest in ProGold.  The corn marketing operations generate revenue for the Cooperative equal to the value of the corn that is delivered to Cargill.  The Cooperative recognizes expense equal to this same amount which results in the corn marketing operations being revenue neutral to the Cooperative, except for revenue from the Method B agency fee and expenses related to the Method A incentive payments, required licensing and bonding expenses, and the service fee paid to Cargill. 

For the fiscal year ended December 31, 2016, the Cooperative sold approximately 15.5 million bushels of corn compared to 15.5 million bushels of corn sold during the fiscal year ended December 31, 2015.  For the fiscal periods ended December 31, 2016 and 2015, the Cooperative recognized corn revenue of $52,135,000 and $56,370,000 respectively, a decrease of 8% due primarily to the decrease of the price of corn sold.  The Cooperative recognized corn expense of $52,240,000 and $56,475,000 in 2016 and 2015 respectively, a decrease of 7% due primarily to decrease in the price of corn purchased.   For the fiscal year ended December 31, 2016, its members, on the Cooperative’s behalf, delivered to Cargill for processing at the facility 4,447,298 bushels of corn using Method A and 11,043,182 bushels of corn using Method B resulting in incentive fee expense of $221,000 and agency fee income of $221,000 for this period while for the fiscal year ended December 31, 2015, its members, on the Cooperative’s behalf, delivered to Cargill for processing at the facility 4,453,298 bushels of corn using Method A and 11,037,184 bushels of corn using Method B resulting in incentive fee expense of $223,000 and agency fee income of $221,000 for this period.  For the fiscal periods ended December 31, 2016 and 2015, the Cooperative recognized expense of $92,000 and $92,000, respectively, in connection with costs incurred to Cargill in connection with the Cooperative’s corn marketing operation. 

The Cooperative derived income from ProGold for the fiscal year ended December 31, 2016, of $5,375,000, an increase of $125,000 or 2% as compared to $5,250,000 for the period ended December 31, 2015.

General and Administrative Expenses.  The Cooperative’s general and administrative expenses include salaries and benefits, professional fees and fees paid to our board of directors.  The general and administrative expenses for the fiscal year ended December 31, 2016, was $574,000 a decrease of $46,000 or 7% as compared to the fiscal year ended December 31, 2015.  The decrease was due primarily to decreased legal and pension plan expenses.

Interest Income.  Interest income for the fiscal year ended December 31, 2016, was $8,000 compared to $8,000 for the fiscal year ended December 31, 2015.

Comparison of Fiscal Years Ended December 31, 2015 and December 31, 2014

Revenues.  The Cooperative derives revenue from two sources:  operations related to the marketing of members’ corn and income derived from the Cooperative’s membership interest in ProGold.  The corn marketing operations generate revenue for the Cooperative equal to the value of the corn that is delivered to Cargill.  The Cooperative recognizes expense equal to this same amount which results in the corn marketing operations being revenue neutral to the Cooperative, except for revenue from the Method B agency fee and expenses related to the Method A incentive payments, required licensing and bonding expenses, and the service fee paid to Cargill.

For the fiscal year ended December 31, 2015, the Cooperative sold approximately 15.5 million bushels of corn compared to 15.5 million bushels of corn sold during the fiscal year ended December 31, 2014.  For the fiscal periods

ended December 31, 2015 and 2014, the Cooperative recognized corn revenue of $56,370,000 and $61,130,000 respectively, a decrease of 8% due primarily to the decrease of the price of corn sold.  The Cooperative recognized corn expense of $56,475,000 and $61,219,000 in 2015 and 2014 respectively, a decrease of 8% due primarily to decrease in the price of corn purchased.   For the fiscal year ended December 31, 2015, its members, on the Cooperative’s behalf, delivered to Cargill for processing at the facility 4,453,298 bushels of corn using Method A and 11,037,184 bushels of corn using Method B resulting in incentive fee expense of $223,000 and agency fee income of $221,000 for this period while for the fiscal year ended December 31, 2014, its members, on the Cooperative’s behalf, delivered to Cargill for processing at the facility 4,262,798 bushels of corn using Method A and 11,227,684 bushels of corn using Method B resulting in incentive fee expense of $213,000 and agency fee income of $225,000 for this period.  For the fiscal periods ended December 31, 2015 and 2014, the Cooperative recognized expense of $92,000 and $92,000, respectively, in connection with costs incurred to Cargill in connection with the Cooperative’s corn marketing operation.

The Cooperative derived income from ProGold for the fiscal year ended December 31, 2015, of $5,250,000, a decrease of $731,000 or 12% as compared to $5,981,000 for the period ended December 31, 2014.

General and Administrative Expenses.  The Cooperative’s general and administrative expenses include salaries and benefits, professional fees and fees paid to our board of directors.  The general and administrative expenses for the fiscal year ended December 31, 2015, was $620,000 a decrease of $40,000 or 6% as compared to the fiscal year ended December 31, 2014.  The decrease was due primarily to decreased professional consulting and pension plan expenses.

Interest Income.  Interest income for the fiscal year ended December 31, 2015, was $8,000 compared to $10,000 for the fiscal year ended December 31, 2014.

Liquidity and Capital Resources

The Cooperative’s working capital at December 31, 2016, was $3,131,000.  The Cooperative’s working capital at December 31, 2015, was $2,527,000.  The Cooperative’s working capital at December 31, 2014, was $2,705,000. 

The Cooperative had no long-term debt as of December 31, 2016, December 31, 2015, and December 31, 2014.

The Cooperative used operating cash flows of $753,000 for the fiscal year ended December 31, 2016, $747,000 for the fiscal year ended December 31, 2015, and $735,000 for the fiscal year ended December 31, 2014.

The Cooperative received cash distributions from ProGold totaling $10,721,000 for the fiscal year ended December 31, 2016, $10,763,000 for the fiscal year ended December 31, 2015 and $9,669,000 for the fiscal year ended December 31, 2014.

The Cooperative paid cash distributions to its members totaling $9,449,000 for the fiscal year ended December 31, 2016, $10,225,000 for the fiscal year ended December 31, 2015 and $9,605,000 for the fiscal year ended December 31, 2014.

Management believes that non-cash working capital levels are appropriate in the current business environment and does not expect a significant increase or reduction of non-cash working capital in the next 12 months.

Off-Balance Sheet Arrangements

The Cooperative is not a party to any off-balance sheet transactions, arrangements or obligations that have, or are reasonably likely to have, a current or future material effect on the Cooperative’s financial condition, changes in the financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Contractual Obligations

The following table provides information regarding the Cooperative’s contractual obligations as of December 31, 2016:

Critical Accounting Estimates

Management’s estimate of the carrying value of the investment in ProGold is based on historical cost plus its pro-rata share of ProGold’s net income and additional paid-in capital less distributions received from ProGold.

The Cooperative does not pay out Method A incentive payments or collect Method B agency fees until the end of its fiscal year.  These amounts are accrued quarterly and then confirmed at the end of the fiscal year.  The total annual Method B agency fee was determinable once the members completed their delivery method determination prior to January 1, 2017.  The quarterly Method B bushel delivery and agency fee revenue was calculated by allocating the portion of the total annual agency fee for a particular quarter or cumulating it for the particular period.  The annual Method B bushel delivery and agency fee revenue is confirmed at the conclusion of the fiscal year.  The Cooperative tracks Method A corn deliveries throughout the year so it can report the bushels of corn delivered by its members as well as the corresponding Method A incentive fees earned.  The final amounts owed by or due to Cargill and/or the Cooperative’s members who elect to deliver using Method A is not calculated until after December 31 in order to account for any failures to deliver or over-deliveries of corn.

The Cooperative has determined corn revenue and corn expense for Method B deliveries based on the average annual cost per bushel paid by Cargill to the Cooperative’s members for Method A quarterly deliveries.

Recent Accounting Pronouncements

             In May 2014, the FASB issued ASU 2014-09, Revenues from Contracts with Customers. The new revenue guidance broadly replaces the revenue guidance provided throughout the Codification.  The core principle of the revenue guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  To achieve that core principle, an entity should apply the following steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation.  The new revenue guidance also requires the capitalization of certain contract acquisition costs.  Reporting entities must prepare new disclosures providing qualitative and quantitative information on the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.  New disclosures also include qualitative and quantitative information on significant judgments, changes in judgments, and contract acquisition assets. At issuance, ASU 2014-09 was effective starting in 2017 for calendar-year public entities, and interim periods within that year. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, which defers the adoption of ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. During the fourth quarter of 2016, The Cooperative completed the initial evaluation of the new standard and the related assessment and review of existing revenue contracts with its customers. The Cooperative determined, on a preliminary basis, that the timing, pattern and amount of revenue recognized during the year should remain substantially the same.

  The Cooperative anticipates utilizing the full retrospective transition method. The primary impact of the adoption on the Cooperative’s financial statements will be the additional required disclosures around revenue recognition in the notes to the financial statements.

Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss to future earnings, to fair values or to future cash flows that may result from changes in the price of a financial instrument.  The value of a financial instrument may change as a result of changes in the interest rates, exchange rates, commodity prices, equity prices and other market changes.  Market risk is attributed to all market-risk sensitive financial instruments, including long term debt.

The Cooperative does not believe that it is subject to any material market risk exposure with respect to interest rates, exchange rates, commodity prices, equity prices and other market changes that would require disclosure under this item.

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

The Cooperative’s financial statements for the fiscal years ended December 31, 2014, 2015 and 2016 have been audited to the extent indicated in this report by Widmer Roel PC, an independent registered public accounting firm.  The financial statements have been prepared in accordance with generally accepted accounting principles and are included in Appendix A of this report.

Item 9.  CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOCUNTING AND FINANCIAL DISCLOSURE

None

Item 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) of the Exchange Act, the person serving as the Cooperative’s chief executive officer and chief financial officer has reviewed and evaluated, as of the end of the period covered by this report, the effectiveness of the Cooperative’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act).  Based on that review and evaluation,  the chief executive officer and chief financial officer has concluded that the Cooperative’s current disclosure controls and procedures, as designed and implemented, are effective in ensuring that information relating to the Cooperative required to be disclosed in the reports the Cooperative files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Security and Exchange Commission’s rules and forms, including ensuring that such information is accumulated and communicated to the Cooperative’s management, including the chief executive officer and the chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.  Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.  Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, because of changes in conditions, the effectiveness of internal control may vary over time.

Management assessed the effectiveness of the Cooperative’s internal control over financial reporting as of December 31, 2016, using criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission

(COSO) in Internal Control-Integrated Framework and concluded that the Company maintained effective internal control over financial reporting as of December 31, 2016 based on these criteria.

This annual report does not include an attestation report of the Cooperative’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Cooperative’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Cooperative to provide only management’s report in this annual report.

Changes in Internal Control over Financial Reporting

There were no changes in the Cooperative’s internal control over financial reporting that occurred during the Cooperative’s most recent fiscal quarter that may have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B.  OTHER INFORMATION

None

PART III

Item 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The Cooperative’s Board of Directors consists of three directors from each of five districts.  Directors are elected to serve three-year terms.  A director cannot serve more than four consecutive three-year terms.  One director is elected each year from each district at district meetings held in March each year.  Directors must hold Units of the Cooperative or must be representatives of such members belonging to the district they represent and are elected by the members of that district.  In the case of a holder of Units who is other than a natural person, a duly appointed or elected representative of such member may serve as a director.

In accordance with our Bylaws, all directors of the Cooperative are required to be members of the Cooperative, residence of the United States of America, and elected by a majority of the members from their district present at a members’ meeting for that purpose.  Each person’s experience, qualifications, attributes or skills to serve as a director are determined by the members voting in the district meetings at which the election occurs and not reviewed or otherwise considered by the Cooperative before any election.  The Cooperative does not have a nominating committee.  A qualified member indicates his or her interest to serve in advance of the meeting or candidates are nominated from the floor at the meetings.  If a member from a particular district does not come forward indicating a desire to run for election to serve as a director then that seat on the Board of Directors for that district becomes or remains unfilled.

The Cooperative’s board officers consist of a Chairman, First Vice Chairman, Second Vice Chairman, Treasurer and Secretary of the Board.  These board offices are populated by members of the Board of Directors who are elected by and at the discretion of the Board of Directors.  Each of these individual’s experience, qualifications, attributes and skills to serve in their capacity as a board officer are determined by the members of the Board of Directors who are voting to place these individuals in these offices.

The name, age, position, district and term details of each of the Directors and the Named Executive Officer are as of March 2, 2017 are as follows:

Below is the biographical information of each Director and our Executive Officer.

Shaun Beauclair.  Mr. Beauclair has been a director since 2008 and Second Vice-Chair since March 2015.  Mr. Beauclair farms in the Stephen, Minnesota area, and has been a Farm Operation instructor at Northland Community College in East Grand Forks, Minnesota.  He has served on the Stephen, Minnesota School Board and his church board.  Mr. Beauclair was a director of the Gold Energy ethanol project start-up board. Mr. Beauclair received his Bachelor of Science Degree in Agronomy and completed graduate courses in Agricultural Economics from North Dakota State University.

David Benedict.    Mr. Benedict has been a director since 2010.  Mr. Benedict farmed in the Sabin, Minnesota area between 1987 to 2014.  Mr. Benedict is employed with Steffes Group Auction Service.  Mr. Benedict took accounting classes at Moorhead State University and later received a Farm Business Management Degree from Minnesota State Community and Technical College.

Bernard J. DeCock.  Mr. DeCock has been a director since 2008.  Mr. DeCock has farmed near Ghent, Minnesota since 1978.  Mr. DeCock has served as Board President of MGT Co-op Oil Company of Minneota, Minnesota; Vice-President of Farmers Cooperative Association of Canby, Minnesota; President of Viking Investment Club of Minneota, Minnesota; and co-chair of St. Edward’s Church Endowment Board of Minneota, Minnesota. Mr. DeCock is currently vice chair of the Lyon County Planning and Zoning Committee. He also serves as Trustee for St. Eloi Parish in Ghent, MN.  Mr. DeCock notified the Cooperative in January 2017 that he will not stand for reelection at the Cooperative’s 2017 Annual Member Meeting, scheduled for March 23, 2017 due to personal reasons and not as a result of any disagreement with the Cooperative.

Mark L. Harless.  Mr. Harless has been a director in March of 2011 and Chairman since March 2015.  Mr. Harless has farmed near Moorhead, Minnesota, since 1985.  Mr. Harless serves as vice president of the Lee Bean and Seed, Inc., an edible bean elevator located in Borup, Minnesota, where he has been employed since 1985.  Mr. Harless received his Bachelor of Science degree in Communications from Concordia College.

Matt Hasbargen.  Mr. Hasbargen has been a director since March 2013 and Secretary since March 2015.  He farms near Breckenridge, Minnesota with his father and brother.  In the winter months he works for AgCountry Farm Credit Services as a Senior Insurance Specialist, Trainer.  Prior to returning home to farm in 1999, Mr. Hasbargen worked for Minnesota Life in St. Paul, Minnesota where he managed life insurance accounts for Farm Credit districts throughout the United States.  Mr. Hasbargen holds an Economics degree from Concordia College.

Scott Jetvig Mr. Jetvig has been a director since March 2015.  Mr. Jetvig has farmed near Hawley, Minnesota since 1989. In addition to his individual farming operation, Mr. Jetvig is President of SKJ Investments, Inc., an incorporated farming operation.  Mr. Jetvig served on Halstad Mutual Fire Insurance Company and Hawley Lutheran Church boards. Mr. Jetvig holds Business Administration and Economics degrees from Moorhead State University.

Gary L. Jirak.  Mr. Jirak has been a director since 2008.  Mr. Jirak has farmed in the Breckenridge, Minnesota area for since 1983.

Brett Johnson.  Mr. Johnson has been a director since March 2013.  He farms in partnership with his brother near Mooreton, ND where they raise corn, soybeans, and sunflowers.  He holds a Bachelor of Science degree in Agricultural Economics from NDSU.  Brett previously served twenty one years as a Township Officer, twelve years on the Wyndmere, ND School Board, and six years on the North Dakota Soybean Council.

Chris A. Johnson.  Mr. Johnson has been a director since 2008.  Mr. Johnson has farming operations located near Great Bend, North Dakota, and has been farming since 1974.  Mr. Johnson is the owner/operator of C and S Farms, Inc.  Mr. Johnson served on the Board of Directors for Farmers Elevator Co. of Hankinson, Great Bend, & Mantador.  Mr. Johnson has a Bachelor of Science Degree in Agricultural Economics from North Dakota State University.

Glenn H. Johnson.  Mr. Johnson has been a director since 2008.  Mr. Johnson has managed a farming operation in the Mayville, North Dakota area since 1981.

Byron Koehl.  Mr. Koehl has been a director since March 2010.  Mr. Koehl is a partner in his family’s farming operation near Hancock, Minnesota, since 1984.  Mr. Koehl serves as President of Outback Five, Inc., of Hancock, Minnesota.  Mr. Koehl is past President of the Stevens County Pork Producers.

Leslie O. Nesvig.  Mr. Nesvig has been a director since 2008 and Treasurer since 2017.  Mr. Nesvig has farming interests in LaMoure and Ranson Counties in North Dakota and Polk County in Minnesota.  He has forty years of experience the banking industry including serving as President of the First State Bank of LaMoure from 1973 to 2009.  Mr. Nesvig is currently retired.   Mr. Nesvig served as Chairman of the Gold Energy ethanol plant start-up project.  Mr. Nesvig currently serves as a Director for Nored, Inc. and  for Bancinsure. Mr. Nesvig has a Bachelor of Science Degree in Agricultural Economics and Business from North Dakota State University.

Nicolas A. Pyle.  Mr. Pyle has been a director since 2010 and First Vice-Chair since March 2015.  Mr. Pyle holds a BSB degree in finance from the University of Minnesota Carlson School of Management.  He has been farming since 2002 near Casselton, North Dakota.  Mr. Pyle serves as a director of McIntyre-Pyle, Inc.  Mr. Pyle is president and a director of Unity Seed Company, a member of Global Soy Genetics LLC and Director of McIntyre Farms Partnership.

Bruce K. Speich.  Mr. Speich has been a director since 2008.  Mr. Speich has farming/ranching operations located in Milnor, North Dakota, and has been farming since 1975.  Mr. Speich currently serves as director for North Dakota Beef Cattle Improvement Association and director for Wild Rice Soil Conservation District.

Lawrence A. Vipond. Mr. Vipond has been a director since March 2015. Mr. Vipond has been farming since 1971 and is a partner in Vipond Farms of Norcross, MN.  Mr. Vipond previously served on the New Horizons Board of Directors and the St. Charles Church Board. Mr. Vipond also served as Chairman of the Herman Community Center Capital Fund Drive. Mr. Vipond attended Fergus Falls Community College.

Scott Stofferahn.  Mr. Stofferahn was elected Executive Vice President, Chief Executive Officer and Chief Financial Officer of the Cooperative effective October 15, 2012.  Starting in March 2001, Mr. Stofferahn worked as State Director for North Dakota Senator Kent Conrad.  Prior to that, he was the State Executive Director for the North Dakota Farm Service Agency from 1993 to 2001.  Mr. Stofferahn has extensive public service experience including serving in the

North Dakota State House of Representatives from 1982 to 1992.  Mr. Stofferahn received his Bachelor of Science Degree from North Dakota State University.

Audit Committee and Audit Committee Financial Expert

The Audit Committee assists the Board of Directors in fulfilling its oversight responsibilities relating to the Cooperative’s financial reporting and controls, the annual independent audit of the Cooperative’s financial statements and the legal compliance and ethics programs as established by management and the Board of Directors.  The Audit Committee selects the independent public accountants and approves the fees, scope and procedural plans of the audits of the Cooperative’s financial statements.  The Audit Committee administers the Cooperative’s employee complaint program and handles, on behalf of the full Board of Directors, any issues that arise under the Cooperative’s Code of Ethics.  The Audit Committee has a charter that is available from the Cooperative upon request.

As of December 31, 2016, the Board of Directors of the Cooperative has determined that there is no audit committee financial expert serving on the Audit Committee.  The Cooperative is a cooperative association formed in accordance with the Minnesota cooperative law of the State of Minnesota.  In accordance with the Minnesota cooperative association law, and the Cooperative’s Amended and Restated Bylaws, the Board of Directors must be composed of members of the Cooperative.   Based on the state law requirements for both membership and board service, the Cooperative is unable to recruit outside of its membership to elect to its Board of Directors and its audit committee an individual that possesses the attributes of an “audit committee financial expert” as defined by the SEC.  To date, the Cooperative has been unable to recruit from its membership an individual to serve on the Board of Directors that possesses the attributes of an “audit committee financial expert.”

The Audit Committee has reviewed and discussed with management and Widmer Roel our audited financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016. The Audit Committee also discussed with Widmer Roel the matters required to be discussed pursuant to SAS No.114 (Codification of Statements of Auditing Standards, AU Section 380), which includes, among other items, matters related to the conduct of the audit of the Cooperative’s financial statements.

The Audit Committee has received and reviewed the written disclosures and the letter from Widmer Roel required by the applicable requirements of the Public Company Accounting Oversight Board regarding Widmer Roel’s communications with the Audit Committee concerning its independence from the Cooperative and has discussed with Widmer Roel its independence from the Cooperative.

Based on the review and discussions referred to above, the Audit Committee recommended to the Board that the audited financial statements be included in our Annual Report on Form 10-K for our fiscal year ended December 31, 2016 for filing with the Securities and Exchange Commission.

The members of the Audit Committee at the time of the foregoing review, discussions and recommendation were Nicolas Pyle, chair, Gary Jirak, Shaun Beauclair, Leslie Nesvig, Glenn Johnson, Brett Johnson, and Mark Harless.

Code of Ethics

The Cooperative has adopted a code of ethics that applies to its principal executive officer and principal financial officer as well as all employees and Directors of the Cooperative.  The Cooperative’s code of ethics is posted on its website. The Cooperative intends to include on its website, within the time period required by Form 8-K, any amendment to, or waiver from, a provision of our Code of Ethics that applies to its principal executive officer, principal financial officer, principal accounting officer, controller, or persons performing similar functions, that relates to any element of the Code of Ethics definition enumerated in Item 406(b) of Regulation S-K.

Item 11.  EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

The Board of Directors has a Personnel and Compensation Committee which is comprised of Messrs. Bernard DeCock, chair, Mark Harless, Matt Hasbargen, Chris Johnson, Bruce Speich, and Larry Vipond during fiscal 2016.  The Committee and Board of Directors have reviewed and discussed the compensation discussion and analysis set forth in

this report and, based on this review and discussion, the Board of Directors has approved the inclusion of the compensation discussion analysis in this report.

The Cooperative only has a single employee who serves in the capacity of its chief executive officer and chief financial officer (our Named Executive Officer).  The primary objective of the Cooperative’s executive compensation program is to maintain a compensation program that will fairly compensate the Named Executive Officer.  In determining the compensation of the Named Executive Officer, the Personnel and Compensation Committee considers the financial condition and operational performance of the Cooperative during the prior year.

The Personnel and Compensation Committee may review the compensation practices of other companies, based in part on market survey data and other statistical data relating to executive compensation obtained through industry publications and other sources.  The Personnel and Compensation Committee does not intend to benchmark executive compensation directly with other publicly traded companies or other companies with which we may compete for potential executives since some of these competitors are privately held companies for which executive compensation information may not be available.  However, the Personnel and Compensation Committee may compare executive compensation as a whole with the compensation packages of other companies for which survey data is available, and may also compare the pay of individual executives if the jobs are sufficiently similar to make the comparison meaningful.

Perquisites and Other Benefits

401(k) Plan

The Cooperative makes available a 401(k) plan for its Named Executive Officer and Administrative Assistant.  The Cooperative pays four percent (4%) of employee’s annual salary into the plan, and the employee may make additional contributions up to the lawful limits.

Employment Agreements

Mr. Stofferahn is not party to an employment agreement with the Cooperative.

Deferred Compensation Agreement

The Cooperative has not adopted any bonus, profit sharing, or deferred compensation plans other than a pension plan for which accruals were frozen as of January 1, 2013 and under which one former employee receives benefits.

Compensation Policies and Practices and Risk Management

Mr. Stofferahn’s compensation is set by the Board.  In the event it is modified, such a modification is based on a performance evaluation conducted by our Personnel and Compensation Committee that consists solely of members of the Board.  As discussed throughout this report, the revenue and expenses of the Cooperative directly relate to the price of corn as well as the rental income received by ProGold for the facility.  Mr. Stofferahn has no control over these two factors.  Based on this reality, no risks arise from the Cooperative’s compensation policies and practices that are reasonably likely to have a material adverse effect on its business operations.

Summary Executive Compensation Table

The following table sets forth, for the last three calendar years, the dollar value of all compensation awarded to, earned by or paid to Mr. Stofferahn.

** Mr. Stofferahn commenced his employment on October 15, 2012.

(1) All Other Compensation is comprised of premiums paid for life and disability insurance, company contributions to the 401(k) plan and reimbursements from the health reimbursement account.

Director Compensation

The Cooperative reimburses our Directors for expenses incurred in connection with board service.  The Cooperative’s Directors are paid $150 per month and the Chairman is paid $375 per month.  In addition, Directors and the Chairman receive a per diem of:

The following table sets forth for the year ending December 31, 2016 the dollar value of all cash and non-cash compensation paid to individuals serving as Directors of the Cooperative during fiscal year 2016.

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth, as of March 2, 2017 the number of Units beneficially owned and the percent so owned by (1) each of our directors as of such date, (2) Scott Stofferahn, our Executive Vice President (our Named Executive Officer) and (4) all of our Directors and the Named Executive Officer as a group.  The number of Units owned by each person are those beneficially owned, as determined under the rules of the SEC, and such information is not necessarily indicative of beneficial ownership for any other purpose.  Under such rules, beneficial ownership includes any Units as to which a person has sole or shared voting power or investment power and any Units which the person has the right to acquire within 60 days through the exercise of any option, warrant or right, through conversion of any security or pursuant to the automatic termination of a power of attorney or revocation of a trust, discretionary account or similar arrangement.  The applicable percentage ownership is based on 15,490,480 Units outstanding held by 1,552 members.  Each member of the Cooperative is allowed to cast one vote at any meeting of the members, regardless of the number of Units actually held by that member.  Some of our directors hold their Units through more than one entity which allows those directors to cast a vote for each one of those members.  The address of each director and our Named Executive Officer is 1002 Main Avenue W, Suite 5, West Fargo, ND 58078.